Retail has recovered, though not completely, from the January sell off sale that knocked the SPDR S&P Retail ETF XRT down double digits in January. High end products have fared better in a very hit or miss fashion market.
XRT is up nearly 30% over the last year with famous purse maker left holding the bag with only a 5% gain. Coach Inc. (COH) disappointed to push prices blow the multi-year support at $50 with an extreme low at $44. The lows did not see new highs in volatility which often signals a bottom to a fire sale stock decline.
That initial upside objective is that $65 midpoint (the 2012 $80 high and the $50 multi-year support). COH price target is 33% above the current price. Only a weekly close below the $44.00 support level would void the bottoming action.
TRADE SETUP
I recommend the January 2015 COH $40.00 Call at $9.75 or less. A close below $44.00 on a weekly basis or the loss of half of the option premium would trigger an exit.
This option strike gives you the right to buy the shares at the $40 with absolutely limited risk. The 2010 breakout $40 price acts as the next level of downside support. The January option gives nearly eleven months for bullish development.
The maximum loss is limited to the $975 or less paid per option contract. The upside, on the other hand, is unlimited. The Delta of this option is 80% meaning that it will act much like the stock.
The COH option trade breakeven price is $49.75 at expiration ($40.00 strike plus $9.75 option premium). That is little more than $1.00 above Coach’s current price. If shares hit the halfway recovery $65.00 price target, the option investment would gain 135% to $23.
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